Smaller reporting company (SRC) status under the rules of the Securities and Exchange Commission (SEC) is determined annually by reporting companies based on a company’s “public float” as of the last business day of the company’s second fiscal quarter. A more detailed discussion of the SRC qualification requirements and the SRC scaled disclosure accommodations is available here.
As an overview, here are seven things to know about SRC qualification and the public float test:
1. The SRC public float measurement date for reporting companies with a December 31 fiscal year end will be Friday, June 30. To qualify as a SRC based on its public float, the company’s public float must be less than $250 million.
2. Public float is calculated by multiplying the aggregate worldwide number of shares of a company’s voting and non-voting common equity held by non-affiliates by the price at which the company’s common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity.
3. A reporting company that does not qualify as a SRC based on its public float may qualify as a SRC if its annual revenues were less than $100 million for the most recent fiscal year for which audited financial statements are available that was completed before the measurement date and either the company’s public float was less than $700 million or the company had no public float. A reporting company that is not a SRC may requalify if it satisfies the tests for requalification, which are described in the attachment.
4. A company that qualifies as a SRC can elect to use some or all of the “scaled” (reduced) disclosure accommodations provided by various SEC rules, which include an exemption from the requirement to provide an auditor’s attestation of management’s assessment of the effectiveness of the company’s internal control over financial reporting and reduced executive compensation disclosure, among others.
5. A company that qualifies as a SRC as of the measurement date can elect to use some or all of the SRC disclosure accommodations in its next Form 10-Q report (i.e., the Form 10-Q report for its second fiscal quarter). If it does so, the company must check the SRC box on the cover page of the report. Beginning with the Form 10-Q report for the first fiscal quarter of the following year, the company must check the SRC box, even if it does not rely on the SRC scaled disclosure accommodations.
6. Of the three recent SEC rulemaking initiatives (clawbacks, Rule 10b5-1/insider trading and company share repurchases), only the Rule 10b5-1/insider trading amendments provide any relief for SRCs, which in this case is a six month deferral of the compliance date.
7. Foreign private issuers that satisfy the SRC qualification tests and wish to use the SRC disclosure accommodations can do so only if they file on U.S. domestic forms (e.g., Form 10-K, Form 10-Q and Form 8-K) and present their financial statements pursuant to U.S. GAAP.
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